April manufacturing output surprises to the upside
Total manufacturing output (not seasonally adjusted) grew by 3.4% y/y in April, marking a better start to the second quarter and reflecting a rebound from five consecutive months of annual decline. This follows a downwardly revised contraction of 1.8% y/y (previously 1.1% y/y contraction) in March. The outturn was better than the Bloomberg consensus prediction of a 2.0% y/y expansion. Seasonally adjusted manufacturing output grew by 0.5% m/m, following a 3.4% monthly increase (downwardly revised from 4.0% m/m) in March. The better outcome for manufacturing output comes despite persistent loadshedding (which saw stage 6 implemented for over 13 days in April) and reflects some resilience in the broader manufacturing sector. In addition, there were fewer working days in April than in each of the first three months in 1Q23, which technically implies that the monthly increase in output could have been better. Interestingly, monthly output keeps surprising to the upside despite the manufacturing PMI business activity index remaining in contractionary terrain since February.
Outlook
Notwithstanding April's better-than-expected manufacturing output growth, near-term activity in the manufacturing sector remains fragile and clouded by the unknown direct impact of load-shedding, particularly during winter, logistical constraints, as well as moderating domestic and external demand. Manufacturing capacity utilisation had fallen at the end of March, primarily reflecting insufficient domestic demand. This is while the manufacturing PMI tracking expected business conditions over the near term fell to 43.7 index points in May from 51 in April and from a peak of 63.8 in January, indicating that most manufacturers were pessimistic about near-term operating business conditions. Nevertheless, despite a bleak near-term outlook, the manufacturing sector should reflect modest growth over the medium term as private sector energy generation increases and load-shedding eases.
Selected sector analysis
The annual increase in output was broad-based, with nine out of ten manufacturing divisions posting growth. Among the larger divisions, the basic iron and steel, non-ferrous metal products, metal products and machinery division grew by 5.3% y/y in April (from 0.5% y/y in March), adding 1.1ppt to overall manufacturing output growth. This was followed by the food and beverages division which grew by 4.6% y/y after increasing by 3.5% y/y in March. The petroleum, chemical products, rubber and plastic products division grew by 2.8% y/y, rebounding from nine consecutive months of annual decline. The motor vehicles, parts and accessories and other transport equipment division was up by 5.0% y/y, following growth of 4.6% y/y in March. The wood and wood products, paper, publishing and printing division recorded 0% growth, but this followed seven consecutive months of annual decline.
